No doubt, if you’ve looked into starting your own eCommerce business, you’ve thought of the idea of dropshipping. Creating a dropshipping website is known to be a very attractive solution to individuals or businesses who want to sell items online but don’t want to manufacture, store, or ship those items. Instead, they can focus on what they do best: selling.
If you’re considering dropshipping, you might want to take a look at our guide first. We’re breaking down the pros and cons of dropshipping.
Dropshipping is a way of fulfilling eCommerce orders that doesn’t require you to keep your products in stock. As a way around this, the store sells the product and a third-party supplier handles the packages and shipping of the order to the customer.
It makes for a business model that splits the selling from the shipping. You might go through your entire business without ever seeing the stock. It is stored, packaged, and shipped by your third-party dropshipping company partner. You simply have to focus on selling the product.
There are drawbacks to this idea, however. You’re not just selling other people’s good and taking a cut for yourself. It can be harder than you expect, and, like every other industry, there are pros and cons.
Con: Low-profit margins
It might sound like the idea of not managing your own inventory means less overhead, but it also means less profit. There is less money of your own going in and less coming out, which means you’ll have to work hard for what you’re getting. There is a lot that goes into staying afloat before even thinking about making a profit.
Pro: It doesn’t require you to hold stock
You are simply doing the selling side of things which allows you some privileges. You don’t need to manage or store stock, worry about inventories, or any of the other expenses of shipping products. Instead, you get a nice discount on buying from manufacturers and wholesalers for the right to sell their products for a profit.
Con: Highly competitive
But because that sounds so cushy, there are many people who have their eye on the idea. The internet has allowed a lot of small businesses to pop up, and dropshipping has eliminated some of the biggest obstacles to selling products online, namely, making, storing, and shipping the products. It’s easy to see why many people might see the ease and fill the market with competitors.
Pro: You get protection from overselling
Market fluctuations are a particular problem in eCommerce, and they are often unpredictable. Even the seasonal changes are becoming less predictable with climate change. Having a dropshipper supplier allows you to forgo overstocking to meet maximums, which will eat into profits with rising inventory costs, and, instead, you can sell what you sell and have the rest as a backup.
Con: No control over the supply chain
If you were to get a lot of complaints from customers about the state of this particular jacket, the quality is shoddy; its pockets are sewn up; it’s falling apart; etc. – what can you say to these customers? Not much. You can’t tell them that that is the feedback you will take on board and try to improve, because you have no control over the supply chain. You can’t tell the design team to add real pockets, or use better fabrics, etc. They’re not your products. You’re just the messenger.
Pro: It’s a good means of market research
There is room for improvement in terms of profits, but those profits are best achieved by knowing what you are doing. A good bit of market research will take you a long way.
For one thing, it’s worth remembering to use dropshipping as a means of balancing out the risk of trying new products out on the market. If you have a warehouse full of items you’re not sure about, you can use dropshipping to feed the item out slowly and see what the response is.
Con: Difficult to build a brand
Unfortunately, in this business model, you are the quickest to forget. The dropshippers are the ghostwriters of the product selling industry. They do the work but the recognition goes somewhere else. In this case, the product’s brand is most likely to get the recognition from the products that are out there.
It’s not your logo on the box, or the product, or the website. You’re simply another set of hands in a game of pass the parcel where the music stops at the customer.
Ultimately, the dropshipping business really makes more sense for an established business than it does for a startup. The upfront benefits are outweighed by a light profit margin and difficulty getting recognized, making for a short-lived business idea.